As simple as it sounds, this category talks about classic numbers and ratios used to evaluate business since old times. Though the numbers aren’t as simple as we hope, the basic scoring method, luckily, is pretty easy to be digested. Good numbers represent a good quality investment. Good quality investment represents a well managed financial asset, in this case, business as a whole. To determine whether it is good or not, we will have to inspect each ratio and usage. Return on Investment (ROI), for example, will sometimes need to be defined better according to the business type, this is why some companies prefer to use Return on Invested Capital (ROIC) or Return on Equity (ROE) or Return on Capital Employed (ROCE).
These ratio numbers may sometimes get a bit complicated as financial knowledge is necessary to understand what it means and how to read it. Decision makers are encouraged to cultivate deeper understanding in this field as it is necessary to be able to effectively manage the company as a whole and as an investment medium. Having a decent knowledge in this field means knowing exactly the big picture of the company itself as a way to generate money, or sometimes for an even better purpose, for humanity. But even the later is hard to be accomplished by unprofitable companies—since usually, such companies are also unable to grow effectively. To study more about these topics, decision-makers can attend accounting classes, seminars, or consult with professionals as well as reading books and articles about company valuations. Plomia also provides such articles on the web, feel free to surf and explore them when required. In this field, practice truly makes perfect, experience and implementation can really help to understand the subject clearly. Take workshops and exercises as well to test your knowledge against most cases. Having a good education in this field is surely an advantage worth investing (Berkowski, 2015).
Similar to others, for investment activities in the Plomia framework, good numbers are equivalent to good signs of persistence and love. The fact that it is hard and requires extra care with diligence to maintain good ratios indicate the underlying nature of both love and persistence of the department. When the so-called department stops caring for the business (yes, this could happen, in fact, it happened A LOT), for whatever reasons, these number will change quickly and dramatically (Charan, 2017).
The only problem is that they only provide historically, or at most, current values. Sure we can make forecasts from those numbers, and at many times, they can help to confirm other two fields’ score values, but without using operating and marketing activities as indicators, any relevant result is hardly obtainable. Sometimes a bigger problem can arise unnoticed as a result of relying only to these numbers, however, it is true that they have been used and helped investors for a long long time, and inspire the standardised version of financial statements around the world. This is also why financial knowledge should be at least become a basic knowledge which a larger business decision makers should have despite having good leadership and selling ability.
In fact, operating, marketing, and investing activities are always in the end connected. In order to identify problems and grow effectively, we propose that it is necessary to consider those 3 business’ aspect equally. A weakness in one of them can impact others significantly, and vice versa. Take an example as what happened in Facebook recently. An operating failure (data safety) resulting in its stock price drop around 5% in a single day and 9% in a year (Kelleher, 2018). Another frequent case is when a company does not invest in market research before launching their products into the market, Jaguar does this a few years ago and lose some sales—bad ROI for the year (Jones, 2008). Uber and Lyft still struggling today despite its good operations and strong capital support. This results in controversies in going public very recently—also a bad score for investing activities (Trainer, 2019; Sherman, 2019). These cases give us a clear understanding of how even only one of the aspects can snowball the others in the same direction. This inspires our framework to implement changes one step at a time, not rushing at every aspect altogether at the same time since it is unnecessary to do so. Just an improvement at one side can lead to significant improvement on the other side as well.